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Friday, August 29, 2014

Strike at Cameco breathes life into uranium price

The company announced today that it will be putting a stop to operations at the McArthur River uranium mine and Key Lake mill in the Athabasca Basin due to a labor-management dispute. Cameco received a strike notice from United Steelworkers Union Local 8914 employees for Saturday night. In response, the company issued a lockout notice.

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The Athabasca Basin is expected to produce 16.3 percent of global uranium supply in 2014, according to Raymond James, with McArthur/Key Lake being by and large the most significant contributors to the market. However, as Sadowski says in his note, in recent years, global reliance on McArthur/Key Lake has ebbed due to the rise of Kazakh output. Nonetheless, the firm is still expecting output of 19.2 million ounces in 2014, which is roughly 12.8 percent of the world's mine supply and 10.2 percent of total supply, including secondary sources.

I am not really sure what the effect of this strike will have on the uranium price. If it is longer strike then it will help shrink the temporary supply surplus. Cameco may not be in big hurry to settle the strike as it can easily fulfill its contracts. It can even go into the spot market and buy cheap uranium to settle contracts that were set at a higher price. Nevertheless we have seen what a protracted strike can do to a commodity that has tenuous supply/demand fundamentals i.e. palladium. Time will tell what happens with this situation. Uranium is still my number one long term specualtion.